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Tim Hannagan: USDA August Crops Report is next

By Tim Hannagan Senior Analyst

We started Monday with our weekly export inspection report showing corn inspected for near term export at 41.9 million bushels (mb), up from 33.9 the week prior and strong four week average of 36 m.b. 

As always, 30 to 39 m.b. is demand-friendly and anything over 40 m.b. is bullish for near-term demand. Soybean inspections were 7.1 m.b. versus 10.6 the week prior and four week average of 6 m.b. Clearly, corn and bean sales this strong off last week’s new high prices on the year suggest some panic-buying from endusers getting some coverage on fear another 2008 price year is building. 

If foreign wheat exporting ports are suffering thru a wheat drought that’s cutting their exports, its only logical to fear corn and beans produced not for export but their own needs, will lead to corn and bean imports. China came in Monday and Tuesday for 684 t.m.t. of beans  and continue a monster import pace to start August.  Wheat inspections were 14 m.b. versus 22 the week prior, 15 a year ago and four week average of 18. Traders saw a little pull back today after sharp wheat losses Friday suggested to importers a near term top may be in. 

With foreign port wheat production expected to fall sharply this year due to poor weather on summer spring wheat crops, the mental fear in the market is the U.S., as the world’s number one port of quality and quantity wheat, will see record exports in the new marketing year thru June 1, 2011. But, the demand side influence in realty is in the big picture of trading influence and not the day-to-day or weekly changes as there always variable. 

After the close of trading Monday, our crop condition reports came out. Corn came in at 71% in good to excellent unchanged on the week but over a year ago of 68% and 10 year average of  61%. Beans were 66% G-E ,unchanged on the week, equal a year ago and over the 10-year average of 59%. The government wants us to believe the adverse and uneven weather across the Corn Belt had no change in condition either way. They must be putting all attention on the big USDA monthly crop report Thursday at 7;30 central time. 

Ok, so lets look at it. The average pre-report trade guess for corn production is 13.282 b.b.up 37 m.b. from last month. Beans average was 3.366 b.b., up 21 m.b. With the weekly government crop condition reports declining in July, we should expect a lower production numbers assuming the government uses their own figures. The ending stocks figures came in like this: Corn 1.459 b.b., down 18 m.b. from last month for old crop year sales before Sept. 1 and 1.307 for the 2011 export year, down 66 m.b. Soybeans for old crop year is guessed at 166 m.b. down 9 m.b. versus July and new crop year 334 m.b. down 26 m.b. Wheats marketing year begins June 1 for the new year, so it's on its way. The new crop year estimate is 982 m.b. versus 1.093 b.b. last month. 

The old adage is anything over the average guesses is bearish and under is bullish for report day. If the report comes in neutral-to-bearish, we should expect last week's high-trading prices to hold with pre-harvest profit-taking into September's beginning of harvest. If the report is surprisingly bullish, new highs for the summer will quickly appear followed by lower trade into the September harvest. 

Large trading funds always push prices higher into the summer growing season to reduce their long positions into the harvest, as they are very seasonal-oriented on their trading patterns. 

If there is going to be a surprise, it should come on the bullish side on this report. Many of the firms polled are of the commercial mind-set that are always supply-side bearish and always underestimating demand. As you can see by the new crop year ending stocks figure, they have not adjusted for feed demand on foreign ports and Asian protein needs. Last year, at this time, they had this year's ending stocks about the same well over 300 m.b., yet were around 166 m.b..The government, too, has been guilty of underestimating new crop usage. So, there is room for them to get aggressive. With all that’s happening on the demand side with further livestock expansion in China and all over Asia projected for 2011 and protein needs from oils like soyoil expanding world wide and lower world production ahead, you can only assume next year's bean ending stocks could end up closer to 110 m.b. 

But, one day at a time, be ready for Thursday. 

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